Question

Ashoaka Ltd. earns 10/-share. The capitalization rate and the return on investment are 10% and 12% respectively. Calculate the optimum dividend payout ratio & price of the share at payout.

a. Zero, 120

b. 50%, 130

c. 100%, 100

d. Zero, 100​

Answer 1

Answer:

a one

Explanation:

because this answer is correct

Answer 2

Given: Ashoka Ltd. earns 10/-share. The capitalization rate and the return on investment are 10% and 12% respectively.

To Find: The optimum dividend payout ratio & price of the share at payout.

Solution: Since,$r> K_{e}$, the optimum dividend pay-out ratio would be 'Zero' (i.e. D=0).

Accordingly, value of share:

                                   $P= \frac{D+\frac{r}{K_{e} } (E-D)}{K_{e} } \\P= \frac{0+\frac{0.12}{0.10 } (10-0)}{0.10 } =Rs.120$

The optimality of the above payout ratio can be proved by using 25%, 50%,75% and 100% as pay-out ratio:

At 25% pay-out ratio

                                  $P= \frac{2.5+\frac{0.12}{0.10 } (10-2.5)}{0.10 } =Rs.115$

At 50% pay-out ratio

                                 $P= \frac{5+\frac{0.12}{0.10 } (10-5)}{0.10 } =Rs.110$

At 75% pay-out ratio

                                 $P= \frac{7.5+\frac{0.12}{0.10 } (10-7.5)}{0.10 } =Rs.105$

At 100% pay-out ratio

                                 $P= \frac{10+\frac{0.12}{0.10 } (10-10)}{0.10 } =Rs.100$

Answer:- The optimum dividend payout ratio is Rs.120 and price of the share at payout ratio of 25%, 50%, 75% and 100% is Rs.115, Rs.110, Rs.105 and Rs.100 respectively.